What employers need to know about the Autumn Budget and Spending Review 2021
Last week, the Chancellor announced the Autumn Budget 2021, noting that it marks the start of a new economy post-Covid reflecting higher wages, higher skills, and rising productivity. But what do the announcements mean for employers and how can you prepare?
1. Increase in National Living Wage (NLW) and National Minimum Wage (NMW)
From 1 April 2022, the NLW for those over 23 will rise from £8.91 to £9.50 per hour. NMW rates will also rise from £8.36 to £9.18 for those aged 21-22, from £6.56 to £6.83 for those aged 18-20, from £4.62 to £4.81 for under 18s and from £4.30 to £4.81 for Apprentices.
What this means
The 6.6% hike in the NLW up to £9.50 / hour for those aged over 23 in April 2022 will increase earnings for over 2 million of the lowest-paid workers in the country. Employers will face higher wages bills, most likely including the knock on effect of higher wages for more senior employees to maintain an appropriate pay differential.
The increase will also bring more workers closer to the NLW / NMW limits. Employers will need to be alive to the common risk areas that create NLW / NMW underpayment, especially when considered within the context of different job roles or sections of the workforce than were perhaps previously in scope of the NLW / NMW legislation. HMRC's enhanced focus on NLW / NMW enforcement in recent years has frequently resulted in compliance investigations regarding (i) charges to employees for uniforms / locker keys and other incidentals which result in a reduction in salary (ii) deductions for lateness where such deductions may take an employee below NLW / NMW (iii) salary sacrifice – what do companies do when an employee who is in a salary sacrifice scheme has their take home pay reduced below NLW / NMW, (iv) how companies define employees' annual hours, (iv) company processes for increasing wages when an employee reaches a new NLW / NMW age bracket and (v) employers keeping an accurate record of hours of work.
Employers can head off the risk of HMRC investigation and/or enforcement action by reviewing pay practices. Let us know if you would like guidance and/or for help in conducting a NMW audit to flag any problem areas. We'll be discussing this and other HR compliance issues further at our webinar on Thursday 18 November at 10am: Are you compliant? The top 5 HR compliance mistakes – and how to avoid making them – sign up to attend here.
2. Health and social care levy and changes to national insurance contributions
On 7 September 2021, the government announced a temporary increase of 1.25% in the rates of dividend tax and in the rates of some National Insurance Contributions (NICs) from April 2022, to be replaced by a new health and social care levy in April 2023.
- From April 2022, NICs will be increased by 1.25% for a temporary period until the levy becomes chargeable. The NICs increase will apply to classes 1 (employee and employer) and 4 (self-employed), both main and higher rates, but will not affect the flat rates for the self-employed (class 2) and voluntary contributions (class 3). Existing NICs reliefs for employers will continue to apply (including to the later levy).
- From April 2023, the NICs increase will be replaced by the introduction of a new health and social care levy on the earnings or profits of persons who pay NICs, to cover the costs of health and social care.
What this means
Employers will need to budget for the effect of the expected 1.25 percent increase on workforce costs from 6 April 2022. This could include reviewing employee benefits to consider using salary sacrifice schemes as a means of cost-efficient pay. You will also want to consider the potential effect on any internationally mobile population, such as higher assignment costs where individuals are subject to UK NICs, and how this could best be managed or mitigated. It might be a good idea to prepare a communications plan for employees and off-payroll workers to highlight the impact of the changes and the wider consequences such as salary sacrifice savings.
Employers will also benefit from the £3 billion allocated to skills and training (initiatives such as skills boot camps and increased funding for apprenticeships) and various reductions in business rates to help businesses get back on their feet.
Overall, the Chancellor's Budget and spending review 2021 delivers historically high levels of public spending on the promise of a higher-wage, higher-skill, higher-productivity economy. For employers, a careful review of the impact of the changes on your business now should ensure that more money for workers doesn't lead to more problems for you.